U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE AC T OF 1934
For the quarterly period ended June 30, 2003
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
For the transition period from ___________ to ____________
Commission File Number 0-24037
FIRST KANSAS FINANCIAL CORPORATION
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(Exact name of Registrant as specified in its Charter)
Kansas 48-1198888
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(State or other Jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
600 Main Street, Osawatomie, Kansas 66064
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 755-3033
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
X Yes No
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State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
As of August 3, 2003, there were 908,245 shares of the Registrant's common
stock, par value $0.10 per share, outstanding. The Registrant has no other
classes of common equity outstanding.
Transitional Small Business Disclosure Format (Check one) :
Yes X No
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FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - as of June 30, 2003 (Unaudited)
and December 31, 2002 2
Consolidated Statements of Earnings - (Unaudited) for
the three and six months ended June 30, 2003 and 2002 3
Consolidated Statements of Cash Flows - (Unaudited) for
the six months ended June 30, 2003 and 2002 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Balance Sheets
(In thousands)
=====================================================================================================
June 30, December 31,
2003 2002
ASSETS (unaudited)
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Cash and cash equivalents $ 10,289 9,558
Investment securities available-for-sale, at fair value 12,049 14,181
Mortgage-backed securities available-for-sale, at fair value 43,448 39,357
Mortgage-backed securities held-to-maturity 14,537 21,548
(approximate fair value of $15,039 and $22,187, respectively)
Loans receivable, net 63,764 57,896
Stock in Federal Home Loan Bank (FHLB) of Topeka, at cost 2,650 2,650
Premises and equipment, net 1,983 2,104
Real estate held for development 347 347
Accrued interest receivable, prepaid expenses and other assets 2,516 2,491
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Total assets $ 151,583 150,132
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities:
Deposits $ 82,691 81,954
Advances from borrowers for property taxes and insurance 258 189
Borrowings from FHLB of Topeka 50,000 50,000
Accrued interest payable and other liabilities 1,591 1,150
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Total liabilities 134,540 133,293
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Stockholders' equity:
Common stock, $.10 par value, 8,000,000 shares authorized, 1,553,938
shares issued 155 155
Additional paid-in capital 15,006 14,964
Retained earnings 10,157 10,067
Treasury stock (645,693 and 642,335 shares, respectively, at cost) (8,033) (7,983)
Unearned compensation (795) (913)
Accumulated other comprehensive income 553 549
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Total stockholders' equity 17,043 16,839
Commitments -- --
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Total liabilities and stockholders' equity $ 151,583 150,132
====================================================================================================
See accompanying notes to unaudited consolidated financial statements.
2
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Earnings
(Unaudited)
(In thousands except per share data)
=================================================================================================================
For the three months For the six months
ended June 30, ended June 30,
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2003 2002 2003 2002
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Interest income:
Loans $ 977 1,085 1,930 2,180
Investment securities 127 174 255 315
Mortgage-backed securities 616 830 1,252 1,638
Interest-bearing deposits 15 23 36 58
Dividends on FHLB stock 23 32 46 64
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Total interest income 1,758 2,144 3,519 4,255
Interest expense:
Deposits 416 654 876 1,366
Borrowings 679 679 1,351 1,351
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Total interest expense 1,095 1,333 2,227 2,717
Net interest income 663 811 1,292 1,538
Provision for loan losses -- -- -- --
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Net interest income after provision for loan losses 663 811 1,292 1,538
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Noninterest income:
Deposit account service fees 301 292 564 528
Gain on sale of mortgage-backed securities available-for-sale -- 21 -- 21
Gain on sale of investment securities available-for-sale -- -- 55 --
Other 56 56 108 108
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Total noninterest income 357 369 727 657
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Noninterest expense:
Compensation and benefits 472 450 950 892
Occupancy and equipment 125 119 254 241
Federal deposit insurance premiums and assessments 14 15 30 30
Data processing 56 54 114 121
Amortization of premium on deposits assumed -- 15 -- 30
Advertising 31 26 62 58
Other 171 168 355 332
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Total noninterest expense 869 847 1,765 1,704
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Earnings before income tax expense 151 333 254 491
Income tax expense 45 100 73 150
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Net earnings $ 106 233 181 341
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Net earnings per share:
Basic $ 0.13 0.28 0.21 0.40
Diluted 0.13 0.27 0.20 0.38
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See accompanying notes to unaudited consolidated financial statements.
3
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows
For the six months ended June 30, 2003 and 2002
(Unaudited)
(In thousands)
=====================================================================================================
2003 2002
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Cash flows from operating activities:
Net earnings $ 181 341
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation 136 133
Amortization of premium on deposits assumed - 30
Amortization of loan fees (4) 1
Accretion of discounts and amortization of premiums on
investment and mortgage-backed securities, net 382 227
Gain on sale of investment securities available-for-sale (55) -
Gain on sale of mortgage-backed securities available-for-sale - (21)
Loss on sale of REO - 1
Increase in accrued interest receivable, prepaids and other assets (25) (80)
Increase in accrued interest payable and other liabilities 530 802
Amortization of RSP shares and allocation of ESOP shares 118 118
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Net cash provided by operating activities 1,263 1,552
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Cash flows from investing activities:
Decrease in loans 3,005 3,715
Loans purchased (8,869) (4,032)
Maturities of investment securities available-for-sale 2,434 838
Paydowns and maturities of mortgage-backed securities available-for-sale 14,979 9,037
Paydowns and maturities of mortgage-backed securities held-to-maturity 6,916 3,124
Proceeds from sale of investment securities available-for-sale 1,055 538
Purchases of mortgage-backed securities held-to-maturity - (1,029)
Purchases of mortgage-backed securities available-for-sale (19,407) (10,157)
Purchases of investment securities available-for-sale (1,295) (5,455)
Investments in cash surrender value of bank owned life insurance - (750)
Proceeds from sale of REO - 14
Additions of premises and equipment, net (15) (8)
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Net cash used by investing activities $ (1,197) (4,165)
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(Continued)
4
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows, Continued
(Unaudited)
(In thousands)
============================================================================================
2003 2002
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits $ 737 116
Net increase in advances from borrowers for taxes and insurance 69 73
Purchases of common stock for the treasury (50) (1,601)
Dividends paid (91) (91)
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Net cash provided by (used by) financing activities 665 (1,503)
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Net increase (decrease) in cash and cash equivalents 731 (4,116)
Cash and cash equivalents at beginning of period 9,558 10,694
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Cash and cash equivalents at end of period $ 10,289 6,578
============================================================================================
See accompanying notes to unaudited consolidated financial statements.
5
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
Notes to Unaudited Consolidated Financial Statements
June 30, 2003 and 2002
(1) basis of presentation
The accompanying consolidated financial statements have been prepared
in accordance with the instructions for Form 10-QSB. The consolidated
financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-KSB
for fiscal year ended December 31, 2002.
The consolidated financial statements include the accounts of First
Kansas Financial Corporation and its wholly-owned subsidiary, First Kansas
Federal Savings Bank (the "Bank" and, collectively, the "Company").
Intercompany balances and transactions have been eliminated. The December
31, 2002 consolidated balance sheet has been derived from the audited
consolidated financial statements as of that date. In the opinion of
management, all adjustments, including normal recurring accruals,
considered necessary for a fair presentation of financial statements have
been reflected herein. The results of the interim period ended June 30,
2003 are not necessarily indicative of the results expected for the year
ending December 31, 2003 or for any other period.
(2) EARNINGS PER COMMON SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding during the period. Common shares issued to the
employee stock ownership plan are not included in the computation until
they are allocated to plan participants. Diluted earnings per share
includes the effect of potential dilutive common shares outstanding during
the period.
The following schedule sets forth the computation of basic and diluted
earnings per share:
For the three months For the six months Ended
Ended June 30, June 30,
2003 2002 2003 2002
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Basic weighted average shares 845,054 835,980 844,395 858,229
Dilutive effect of stock options 45,766 28,817 43,615 29,637
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Diluted weighted average shares 890,820 864,797 888,010 887,866
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6
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
Notes to Unaudited Consolidated Financial Statements
June 30, 2003 and 2002
(3) TOTAL COMPREHENSIVE INCOME
Total comprehensive income is as follows:
Three months Six months
ended June 30 ended June 30
2003 2002 2003 2002
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Net earnings $ 106 233 181 341
Reclassification adjustment
for gain included in net
earnings, net of income tax - - (36) (14)
Other comprehensive
Income-change
in unrealized gain
or loss on available-for-
sale securities, net of
income tax 55 499 40 399
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Total comprehensive income $ 161 732 185 726
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7
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIDARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. First Kansas Financial Corporation (the Company) was formed on February
9, 1998, to become the holding company for First Kansas Federal Savings
Association (the Bank) in the conversion of the Bank from a federal mutual
savings association to a federal stock savings bank (the "Conversion"). The
Conversion to a federal stock savings bank was completed on June 25, 1998, and
the Bank now operates as the First Kansas Federal Savings Bank, which accounts
for virtually all of the Company's business.
The Company's results of operations depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense from interest-bearing liabilities. The Company's operations are
also affected by noninterest income, such as service charges, loan fees and
gains and losses from the sale of securities and newly originated loans. The
Company's principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy costs, provisions for loan losses
and general and administration expenses.
Net earnings for the first half of 2003 decreased $160,000, or 46.9%, as
compared to the same period in 2002. Net earnings for the second quarter of 2003
decreased $127,000, or 54.5%, as compared to the second quarter of 2002. Net
interest income decreased $246,000 for the first six months of 2003 compared to
the same period in 2002 and decreased $148,000 for the second quarter of 2003
compared to the same period in 2002 primarily due to accelerated repayments of
loans and securities in a declining rate environment partially offset by
declining interest rates paid on the deposit portfolio. The decrease in net
earnings for the first half of 2003 was a direct result of the decrease of net
interest income discussed above as well as an increase in noninterest expense,
partially offset by an increase in noninterest income. An increase in gain on
investments plus addition revenue generated by deposit account service fees
resulted in the increase of noninterest income for the first half of 2003 while
compensation expense was the key component for the increase in noninterest
expense.
Interest Income. Interest income decreased $736,000, or 17.3%, to $3.5 million
during the first half of 2003. Interest income decreased $386,000, or 18.0%, for
the second quarter of 2003 compared to the same period in 2002. These decreases
resulted from the general decline in interest rates in all portfolios.
Interest Expense. Interest expense decreased $490,000, or 18.0%, to $1.3 million
during the first half of 2003. Interest expense decreased $238,000, or 17.9%,
for the second quarter of 2003 compared to the same period in 2002. Interest
expense on deposits decreased due to a decline in market interest rates as well
as a $1.7 million decrease in deposits Interest expense on FHLB advances was
identical for the periods involved.
Provision for Loan Losses. The allowance for losses at June 30, 2003 was
$260,000, or .41% of total loans receivable, slightly less than the reserve
percentage of .45% at December 31, 2002.
Noninterest income. Noninterest income increased $70,000, or 10.7%, to $727,000
for the first half of 2003. Noninterest income decreased $12,000, or 3.3%, for
the second quarter of 2003 compared to the same period of 2002. The increase in
the first half of the year was caused by increases in the deposit
8
account service fee income and gain on sale of investments available-for-sale.
The decrease in the second quarter was due to the absence of a gain on sale in
the second quarter of 2003 compared to a gain registered in the second quarter
of 2002.
Noninterest expense. Noninterest expense increased $61,000, or 3.6%, to $1.8
million for the first half of 2003. Noninterest expense increased $22,000, or
2.6%, for the second quarter of 2003 compared to the same period in 2002. The
increases were primarily due to the increase in compensation expense which was
divided evenly between direct salary and employee benefit expense.
Income Tax Expense. Income tax expense decreased in the first half of 2003
compared to the first half of 2002. Effective tax rates for the three and six
month periods ended June 30, 2003 were 30.5% and 28.7% compared to effective
rates of 30.0% and 30.5% in the prior periods.
Asset Distribution. The Company's assets grew from $150.1 million at December
31, 2002 to $151.6 million at June 30, 2003. The Company's primary ongoing
sources of funds are deposits, FHLB advances and proceeds from principal and
interest payments on loans and mortgage backed securities. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
During the first half of 2003, gross loan purchases and originations totaled
$15.7 million compared to $8.4 million for the same period in 2002. The Company
purchased loans of $8.9 million during the first six months of 2003 compared to
$4.0 million for the same period of 2002. In the first six months of 2003, the
Company purchased $20.7 million in mortgage-backed and investment securities
compared to $15.6 million for the same period of 2002. Gross consumer and
commercial loans originated were $1.3 million during the first half of 2003
compared to $2.1 million in the first six months of 2002.
Liquidity Distribution. Deposits increased $737,000 from December 31, 2002 to
June 30, 2003 primarily due to increases in transaction accounts and statement
savings, partially offset by reduction in the certificate of deposit portfolio.
FHLB advances remained unchanged from December 31, 2002.
Capital. At June 30, 2003, the Bank had a Tier 1 capital ratio of 10.21% and a
risk based capital ratio of 28.04%. As shown by the following table, the Bank's
capital exceeded the minimum capital requirement: (Dollars in thousands)
June 30, 2003 December 31, 2002
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Amount Percent Required Amount Percent
------ ------- -------- ------ -------
Tier I Capital $15,360 10.21% 4.00% $15,090 10.13%
Risk Based Capital 15,603 28.04% 8.00% 15,333 29.03%
Savings associations and their holding companies are generally expected to
operate at or above the minimum capital requirements and the above ratios are
well in excess of regulatory minimums.
9
Cautionary Statement. This Quarterly Report on Form 10-QSB contains or may
contain forward-looking statements with respect to the financial condition,
results of operations, plans, objectives, future performance and business of the
Company, including statements preceded by, followed by or that include the
words, "believes", "expects", "anticipates" or similar expressions. These
forward-looking statements involve certain risks and uncertainties and may
relate to future operating results of the company. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities: (1) a significant
increase in competitive pressures among depository and other financial
institutions; (2) changes in the interest rate environment resulting in reduced
margins; (3) general economic or business conditions, either nationally or in
the states in which the Company will be doing business, being less favorable
than expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit; (4) legislative or regulatory changes
adversely affecting the businesses in which the Company will be engaged; (5)
changes in the securities markets; and (6) changes in the banking industry
including the effects of consolidation resulting from possible mergers of
financial institutions
Item 3. Controls and Procedures
-----------------------
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934
(the "Exchange Act")), the Company's principal executive officer and
principal financial officer have concluded that as of the end of the
period covered by this Quarterly Report on Form 10-QSB such disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms
(b) Changes in internal control over financial reporting. During the
quarter under report, there was no change in the Company's internal
control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and its subsidiaries may be a party to
various legal proceedings incident to its or their business. At June
30, 2003, there were no legal proceedings to which the Company or any
subsidiary was a party, or to which any of their property was subject,
which were expected by management to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not Applicable
10
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 15, 2003, the Company held its Annual Meeting of stockholders
(the "meeting"). At the meeting, stockholders re-elected Roger L.
Coltrin and James E. Breckenridge to the Board of Directors each for a
three-year term. Mr. Coltrin and Mr. Breckenridge each received
801,110 Votes For and 12,925 Votes Withheld. As a second item of
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business, a vote was also taken for the appointment of KPMG LLP as the
Company's independent auditor for the fiscal year ending December 31,
2003. The results of the voting were 810,846 Votes For, 1,364 Votes
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Against and 1,825 Votes Abstaining.
-----
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) There were no current reports on Form 8-K filed during the
quarter ended June 30, 2003.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST KANSAS FINANCIAL CORPORATION
Date: August 13, 2003 By: /s/ Larry V. Bailey
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Larry V. Bailey, President
Date: August 13, 2003 By: /s/ James J. Casaert
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James J. Casaert
Vice President and Treasurer
(Principal Accounting Officer)
12